There’s a lot that goes into choosing the right small business loan. In another resource, we explained the REAL cost of a small business loan; today, we’ll talk about some of the standard small business loan terms, typical loan amounts and repayment length.

The length of the repayment period for business loans varies according to the type of loan, the amount borrowed, and the lender. The length of time it will take you to repay the loan could range from a few months to more than 10 years, depending on whether you go with a short-term or long-term loan.

If you want to expand your company’s operations but don’t want the loan payments to eat into your company’s cash flow, a traditional long-term business loan might be the best choice for you. This type of loan typically has lower interest rates than other business loans.

On the other hand, short-term loans are appropriate for circumstances in which you need to bridge a gap in cash flow. These loans are quickly funded but might come at higher interest rates.

The terms and conditions of each loan type will depend on your business’s size and needs.

Let’s take a closer look at some of the most common terms associated with business loans, organized by the different types of loans.

Here’s a more thorough overview of each loan category:

A short-term loan is a form of financing that is typically repaid in 3-18 months. However, some lenders like American Direct Funding are able to offer terms up to 24 months. Short-term loans can be utilized to cover various business expenses, for example, to fund payroll during a seasonal slowdown. Short-term loan amounts vary widely depending on the lender but typically up to $500k.

Short-term loans are quickly funded (often same-day), with interest rates that vary significantly across lenders and borrowers’ standings but generally higher rates than other forms of funding.

A long-term loan for a small business is one that has a repayment period of anywhere between three and ten years. Long-term business loans are a common way to fuel a company’s progress when it is ready to make a significant investment in its future growth. The ability to pay back term loans incrementally over time makes it possible for businesses to finance substantial expenditures. This may involve the acquisition of brand-new manufacturing equipment, commercial real estate or the remodeling of existing facilities. Many companies would be unable to make the necessary transition from financially concentrating on their short-term survival to planning for their long-term expansion if they did not have access to a term loan.

The average size of a long-term loan for a business in the United States ranges from $5,000 to nearly $600,000. After receiving approval, businesses are funded in a lump sum of the total loan amount. They are required to repay the total amount of the loan, plus interest, in a series of payments spread out over the duration of the loan.

Sometimes collateral is required before the approval of a long-term business loan. This means that in the event that your company is unable to make its loan payments as agreed upon (default), the lender will be able to sell off some of the company’s assets, such as inventory, real estate, or vehicles, in order to recoup some of the money lost. It may be challenging for you to acquire a long-term loan if you do not have any form of collateral, a robust business history, and a solid credit score.

Long-term loans generally come with lower interest rates than short-term forms, especially if they are backed by collateral.

In simple terms, an SBA loan refers to a small business loan partially guaranteed by the government through the Small Business Administration (SBA). The SBA works with a network of approved financial institutions that lend money to small businesses. The SBA agency doesn’t lend the money directly to small business owners, but it sets guidelines for loans by partnering with lending institutions.

Terms can vary and can range from 3.72% to 13%, depending on which SBA loan program you are borrowing through, how much you borrow, the repayment term length, and your business’ qualifications. SBA loans can range in size from $500 to $5 million. Repayment terms vary: 10 years for real estate/equipment and 10 years for working capital.

Here’s a resource dedicated to learn more about SBA Loans.

A line of credit is a pre-agreed amount of money that you can borrow and pay back when you need it. Unlike a traditional term loan, you can use the funds for business purchases such as inventory, supplies, or operating expenses as needed. Unlike a term loan, which has a fixed monthly repayment, you can typically repay your credit line in full whenever you want, with no early repayment penalties.

Business lines of credit are similar to business credit cards in that they both allow small businesses to access funds as needed rather than receiving a lump sum from a business loan.

Business lines of credit typically have lower interest rates than business credit cards. Credit limits and interest rates are set by lenders based on factors such as the current owner’s tenure and the company’s annual revenue. A line of credit is typically renewed once a year.

The terms of repayment for business lines of credit can vary from lender to lender. For instance, the loan terms for a business line of credit may range anywhere from 6 months to 2 years with amounts up to $250k. On the other hand, if you require longer terms, you might be able to find repayment terms with a conventional bank that are as long as 5 years.

Business loan terms specific to equipment generally don’t exceed the useful life of the equipment. As a direct consequence of this, equipment loans can have repayment periods of 1 year-5 years.

Here’s a resource dedicated to learn more about Equipment Loans.

Invoice financing, also known as invoice factoring, is a type of short-term funding option that is designed to provide you with an advance of funds to tide you over until the time that your customers can pay their accounts receivable. As a consequence of this, the terms for invoice financing are typically paid in less than 3 months.

The MicroLoan Program provides very small loans to start-up, newly established, or growing small business concerns and certain not-for-profit childcare centers. Under this program, SBA makes funds available to nonprofit community based lenders (Microlender Intermediaries), which, in turn, make loans to eligible borrowers in amounts up to a maximum of $50,000.

The maximum term allowed for a microloan is 6 years. However, loan terms vary according to the size of the loan, the planned use of funds, the requirements of the intermediary lender, and the needs of the small business borrower. Interest rates vary, depending upon the intermediary lender and costs to the intermediary from the U.S. Department of the Treasury.

American Direct Funding offers a streamlined, user-friendly and completely online loan application platform to make it easy for you to obtain the funding you need. Below are the minimum requirements to apply for a business loan.

• 500+ FICO score.
• 12+ months in business.
• $200,000 in annual revenue.
• Basic information about your business.
• Bank connection or most recent 3 months business bank statements.

The term of the business loan you take out will be determined by a number of factors, such as the purpose for which the funds will be used, the source from which you obtained the loan, and the total value of the loan. You may be able to find repayment terms that range anywhere from a few months to more than 20 years, depending on the requirements of your company.

Obtaining a loan can be a huge step for some businesses, especially first-timers; that’s why we offer a completely FREE consultation with one of our finance specialists to help answer your questions and guide you throw the process should you need any assistance.